The Purpose of the Restrictive Debt Covenant That Requires Maintaining

question 94

Multiple Choice

The purpose of the restrictive debt covenant that requires maintaining a minimum level of net working capital is to

• A) protect the lender by controlling the risk and marketability of the borrower's security investment alternatives.
• B) limit the amount of fixed-payment obligations.
• C) ensure a cash shortage does not cause an inability to meet current obligations.
• D) prevent liquidation of assets through large salary increases of key employees.

---

Definitions:

Alternative-Choice Close

A sales technique where the salesperson presents the prospect with two choices, both leading to a sale, aiming to simplify the decision-making process.

Two Options

In decision making, presenting specifically two choices for easier selection or comparison.

Prospect

A prospect is a potential customer or client who has been identified as fitting a target market or criteria for a product or service.

Motivate

To inspire, stimulate, or encourage an individual or group to take action or to enhance their performance through incentives or intrinsic rewards.